After the Cole bombing, the Navy decided it would deploy hundreds of 82-foot-long, 8-foot-wide, floating rubberized barriers to prevent terrorists from getting close to its ships while in port. The barriers would be held in place by a system of anchors, large foam buoys and chains. A network of underwater sensors would detect potential threats.

NCIS had preferred contractors it wanted to hire for the job, auditors would find, and it did not want to undertake an elaborate and time-consuming open competition for the work.

So NCIS turned to the GSA and a program at the time reserved for small businesses that permitted government agencies to hire companies without seeking traditional bids. The program allowed government officials to buy products and services directly from companies after their prices for labor and overhead had been approved by GSA contracting officials. GSA collects user fees from companies for helping to facilitate those kinds of transactions.

In the boat-barrier case, the GSA, at the request of NCIS, selected Northern NEF of Colorado Springs as the prime contractor for the project, documents show.

Northern was a small technology firm -- small enough that did not have to compete under federal rules for government contracts unless they were worth more than $3 million. It had never worked on a boat-barrier project before, but it had worked for the Pentagon on other projects.

Northern was told by NCIS officials to hire P-Con Consulting of Alexandria. The company's sole employee was Patrick Condon, who already worked as a security consultant to NCIS. Condon received a title for his role in the project: deputy program manager for Navy boat barriers.

"Northern NEF officials said they had been directed by the Navy to procure the barriers through the consulting firm instead of dealing directly with the manufacturer," auditors wrote in a 2004 report. "We found documentary evidence that showed the consulting firm was the Navy's 'recommended' contractor."

P-Con, in turn, hired a company in England to manufacture the barriers and one in Northern Virginia to install them.

The former director of government programs for Northern, Dave Nelson, said in a recent interview that he did not know why NCIS selected his company or why his company was directed to hire P-Con.

"Northern played middleman," Nelson said.

Northern stayed below the $3 million threshold when it sought payments for the work from the GSA, invoices show. Each individual payment was approved by NCIS and the GSA as though they were separate projects, even though the work was being done under one contract.

"Almost all of the over $53 million in boat barrier harbor tasks we analyzed were split to avoid the competitive threshold," GSA auditors wrote in their report.

Between September 2001 and February 2003, at least 30 invoices came in under the $3 million limit. Three examples:

· 55 boat barriers for $2.6 million on Sept. 28, 2001.
· 24 for $1.4 million on Oct. 1.
· 58 for $2.9 million on Oct. 12.

On May 9, 2002, three invoices came in for an identical amount -- $2,956,762 each. On Feb. 14, 2003, six invoices came in for $2,678,813 apiece.

GSA officials later told auditors they "believed each order represented a discrete boat-barrier system installed at a discrete harbor, but this was clearly not the case."

Nelson said Northern officials knew the project was being structured to stay beneath the $3 million cap. But he said company officials believed that it was being done properly by NCIS and GSA in the interests of speed and national security.

"It was pretty obvious what they were doing," said Nelson, who is now at another company. "We figured somebody who was in authority knew what they were doing. We didn't go out and try to win this work. It just came our way."

At each step in the process, Northern and P-Con received a percentage of the proceeds from the project.

For example, the base cost for each boat barrier was supposed to be $45,250. Northern charged a 4.8 percent fee for "acting as GSA's order administrator," the auditors said. P-Con charged a 7.5 percent on all expenses as a "Consultant Markup." The final cost to taxpayers for each boat barrier was $50,978.65, auditors estimated.

Even larger markups took place for the installation of the barriers and the buoys to hold them in place, documents show. The base cost for each buoy was supposed to be $31,000. The company responsible for installing the barriers added a 9.8 percent administrative fee and another unspecified 20 percent fee. Company officials told auditors the fees were the standard industry markup.

Northern charged another 5 percent fee. The final cost to taxpayers for each buoy was $42,825.68, documents show.

"Millions of dollars were wasted by compensating the contractors for doing little more than placing orders with other favored contractors to do the actual work," the auditors said.

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